Bitcoin Falls to Six-Week Low as Interest Rates Worry Investors | 04/25/22

Concerns about interest rates rising too quickly across the Atlantic are also causing headaches for investors in the crypto market. Bitcoin traded below $38,500 on Monday, its lowest level in six weeks. The interest rate specter is rife with mischief, especially in risky asset classes. By Timo Emden

Fed chief hints at prospect of rapid interest rate hikes – fear of interest rates dominates price activity

Jerome Powell, head of the US Federal Reserve (Fed), took investors on both sides of the Atlantic on the wrong foot last week. At an International Monetary Fund (IMF) event, Powell signaled rapid rate hikes. Concretely, this means increasing the level of interest rates by 50 basis points and therefore pressing the accelerator pedal. As of May 4, the watchdog of the US currency could raise interest rates twice as fast as announced recently.

At the last March meeting, the Fed corrected the interest rate range by 0.25 percentage points to 0.25-0.50%, reversing interest rate hikes for the first time since 2018. Overall, the Fed could raise interest rates by more than 2.0 percentage points in the remaining six meetings this year.

High inflation is seen as one of the Fed’s main issues that need to be addressed. Due to the restrictive central bank policy, liquidity is increasingly being withdrawn from Bitcoin and Co, removing one of the breeding grounds of the past couple of years.

Rising real interest rates tend to come at the expense of risky asset classes such as crypto assets and generally play into interest-bearing assets such as US government bonds. In return, the US dollar can also benefit.

Concerns about interest rates in this country and Chinese corona worries are accelerating

The fact that the European Central Bank (ECB) could follow in the footsteps of the Fed as of the summer could cause additional unease in the markets. Some ECB central bankers have more recently ruled out a rate hike next July. Galloping inflation is also a thorn in the side of the police of the currency on European soil, which must be fought. According to the latest data, inflation was 7.4% in March, the highest level since the creation of the European Union.

In addition, ongoing corona concerns in China are leading to macroeconomic uncertainties. Strict curfews have been in effect for weeks in the Chinese economic and financial metropolis of Shanghai. Now, something similar could thrive in Beijing. A corona lockdown in the Chinese capital is likely to fuel concerns about economic collateral damage in that country as well as across the Atlantic.

Bitcoin Falls Below $40,000 – Downside Pressure Expected to Remain High

The prospect of a rapid rise in interest rates in the United States remains one of the main negative factors and is gradually stifling investors.

Revealing the $40,000 psychological mark is likely to add to the overall uncertainties. In this context, the downside pressures could remain elevated in the days and weeks to come. Moreover, it is not yet clear what pace the Fed will take overall in the rate hike cycle.

Investors should be prepared for further downside risks. In the worst case, stockbrokers have to manage $30,000 again at the end of the day.

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